Fees to watch out for when shopping for a car or truck

Dec 02, 2023

No one likes to get socked by hefty hidden fees when it comes to buying anything and that's especially true if you're shopping for a car or truck that's already priced around $40,000, or even considerably more.

Paint protection at more than $900? I don't think so.

While many consumers research rebates and shop for deals on interest rates, they aren't reviewing a long list of potential fees and add-ons before buying a car or truck. All extra costs aren't set in stone.

Ideally, you want to be able to spot fees that can be reduced or even eliminated as part of the transaction. So-called "dealer installed options" or add-ons, surprisingly, can drive up your cost by more than $1,200 or $1,500.

"New vehicles don't make a lot of profit for dealerships. They tend to make more money on used cars and the maintenance department," said Ronald Montoya, senior consumer advice editor and content strategy for Edmunds.com.

Dealer-installed add-on items can be extremely lucrative for the dealership and boost the bottom line.

Oddly enough, I spotted one dealer at one point this spring adding nearly $1,000 to an SUV's price for some sort of paint protection. And yes, you can negotiate to reduce or eliminate that fee, even if the dealer says every car on the lot has that add-on.

Take a hard look at what you might be charged for dealer-installed options, such as an interior protection package for the vehicle's upholstery, nitrogen in tires, window tinting, chrome-plated wheels, all-season floor mats, wheel locks, cargo trays and alarm systems. If you want such items, and they're reasonably priced, you might agree to it. Otherwise, experts say, you should question extra fees for something you don't want or need.

Consumer watchdogs are increasingly concerned about these add-ons and would like to see the Federal Trade Commission write rules that say all extra fees need to be included in the upfront price of the car so no one is taken by surprise when they're doing the final paperwork.

In some cases, different consumers might even be charged different prices for the same add-on option — often resulting in discrimination against consumers of color, according to recommendations for tougher regulations made by consumer groups in 2022 to the Federal Trade Commission.

"Consumers cannot readily ascertain when fees and products are inflated, tacked on, and misrepresented," according to the comments made in 2022 by a long list of consumer groups, including PIRG, the Consumer Federation of America and Consumer Reports.

"The lengthy, document-heavy nature of a vehicle purchase transaction is fertile ground for deceptive behavior, and arming consumers with more information at the outset will enable them to better navigate this process and negotiate a fairer deal," according to the consumer groups.

Montoya, who once had a part-time job at an auto dealership, has tracked many of these fees, including the practice by many dealers to install all-season floor mats that can add a few hundred dollars to the price of the car. Consumers should try to negotiate on many fees but realize that there are some that you'll be stuck paying. Car buyers should shop different dealerships, he said, to see who is charging what when it comes to dealer add-ons.

One way to start negotiations: Look carefully at each line item in an offer and question what the cost is covering. If you don't understand what a fee covers, ask.

While many consumers shop online for cars or trucks, Montoya said, they're often not seeing the whole story when it comes to costly fees. The "supplemental sticker" often isn't going to show up when you research a car or truck's price online at the dealership's website.

You want to be well aware of any dealer-installed options or possible markups in price above the sticker for hard-to-get cars or trucks before you finalize any deal.

One tip: If you know what car you'd like to buy, call the dealership and ask whether that vehicle is a equipped with any dealer add-ons. Ask the salesperson to show you the kind of car you want without add-ons. If the dealer has installed these extras on every car, Edmunds.com advises, take time to see whether other dealers in the area do the same. You might want to shop somewhere else.

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Some fees to consider:

It's highly unlikely that you're going to be able to reduce or eliminate a fee called "dealer/doc." It's important to realize that documentary preparation fees often are capped by state law in some but not all states, according to Ed Mierzwinski, senior director for U.S. PIRG's federal consumer program.

PIRG is part of a coalition that is pushing to get the FTC to mandate that doc fees, and other costs, be disclosed upfront, not at the tail end of the transaction.

Documentary preparation fees can vary based on the state where you live.

In Michigan, doc fees are currently capped at a maximum of $260. "The documentary preparation fee shall not exceed 5% of the cash price of the motor vehicle or $260.00, whichever is less," according to a bulletin issued in January from the Michigan Department of Insurance and Financial Services. The cap is adjusted every two years to reflect changes in the consumer price index in the previous two years. The next adjustment for inflation will be in January 2025.

The Michigan Motor Vehicle Sales Finance Act, including the cap on documentation fees, applies to the purchase of new and used vehicles financed with an installment sales contract whether the purchase is made in-person or online, according to Laura Hall, director of communications for the Michigan Department of Insurance and Financial Services.

The documentary preparation fee can only be charged if a vehicle is being financed, according to Aneta Crisp, press secretary for Michigan Secretary of State Jocelyn Benson. The fee is to cover the cost of finance document preparation. The fee is taxable.

But Terry Burns, executive vice president of the Michigan Auto Dealers Association in East Lansing, said the documentary preparation fee applies to both new and used cars — and is charged whether you lease a car, pay cash or finance it.

A dealer, he said, must charge the same fee to all customers on all transactions to avoid the fee from being discriminatory.

“It’s not a mandatory fee. It’s a fee that’s allowed. It’s regulated," Burns said.

In Ohio, the maximum fee allowed is $250. ln Florida, there is no limit set but the median documentation fee is about $899, according to research by Edmunds.com as of May 2023. The averages change over time as people are charged different fees in some states.

If you're in a state where doc fees aren't regulated, know that some dealerships may offer a great price on a car or truck but then drive up your real cost by adding a high doc fee to the contract.

Typically, Mierzwinski said, car buyers cannot avoid destination fees and documentary preparation fees. Destination fees are flat fees, charged to deliver your vehicle from the factory to the dealership. Usually, they can’t be negotiated.

"If you haven’t agreed on the price of the vehicle, and then you try to negotiate fees, the dealership may just add the money back on the price of the vehicle and you won’t know it," Mierzwinski said.

The drastic shortage of car and truck inventories during the pandemic drove many consumers to pay more than sticker in recent years. A high-demand, new car or truck can command extraordinary markups. Some brands and dealerships could charge over sticker more than others.

"Inventory has improved," Montoya said. "We're not really at the levels where we were pre-COVID."

An "addendum" sticker on a new car or truck indicates how much the dealership will charge you above the manufacturer's suggested retail price. The dealer is raising its price to make extra profit.

Depending on whether you can find the car elsewhere, you have to decide how much extra money you're willing to spend — if anything. Ask in advance before heading to a dealership to see whether there is a "market adjustment" or "addendum sticker."

Some dealerships may try to charge a fee to cover advertising, Mierzwinski said. He maintains this amount should be included in their cost of the car already. His advice: Reject.

Dealer prep fees? "To wash and vacuum. Nope," Mierzwinski said.

Tax, title and registration? "Title and registration shouldn’t be much and shouldn’t be marked up," Mierzwinski said.

“I think any fee can be negotiated, but the dealership will look at the total and see if it meets their requirements for profit," Mierzwinski said.

Much might depend on the add-on — and the dealer's eagerness to sell that car.

No hard rule exists when it comes to negotiating on the cost of floor mats, which you could argue could be removed, Montoya said. "If they want to make a discount on the car, they can reduce it by that amount."

It might take extra negotiating skill if the fee involves an add-on item on the car that cannot easily be removed.

"Nitrogen-filled tires, they're not going to deflate the tires and put regular air in it," Montoya said.

But the dealer might cut the cost or not charge you if they really wanted to sell you the car. Some dealers won't budge on some fees at all, he warned. "It's going to be a case-by-case basis."

Why even consider nitrogen-filled tires? The theory behind nitrogen-filled tires is that nitrogen is more stable than air and the tire pressure will remain more constant than one filled with regular air. If so, that could lead to better gas mileage and a longer tire life. But Montoya said a number of studies have shown this difference isn't significant enough to justify the cost.

Don't expect to see the significant rebates, price cuts and willingness to negotiate that consumers saw several years ago.

"Now, we're talking about $500, maybe $1,000 off," Montoya said.

In June, the average discount from the average manufacturer's suggested retail price was $704, according to Edmunds data. That's up from an average of $295 discount in January.

Going back to 2021, he said, consumers typically paid more than MRSP.

Going back to 2016, he said, the average discount was $2,200.

"It's a different market," Montoya said. "They're keeping things tight and the discounts are going to be smaller."

Contact personal finance columnist Susan Tompor: [email protected]. Follow her on Twitter @tompor.